Large hotel sales fell 36% last year as costly debt and a murky economic outlook weighed on the market, though pros believe those factors will improve this year.
A total of $14.06 billion of hotels valued at $25 million or more changed hands in 2023, according to Green Street’s Sales Comps Database. That’s down from $21.86 billion in the prior year, but still well above the pandemic-era low of 2020, when sales amounted to just $6.23 billion.
Amid the volume decline, Eastdil Secured reclaimed the crown after a second-place finish in 2022. JLL moved up one spot to second, while CBRE, the prior year’s winner, slipped to third. Newmark and Cushman & Wakefield rounded out the top five.
Transaction activity for much of 2023 was stymied by a disconnect between owners feeling confident about immediate performance improvements at their properties and buyers remaining cautious over recessionary risks and elevated borrowing costs, said Vann Avedisian, a founding partner at Newbond Holdings. This disconnect was further exaggerated in leisure markets where performance continues to trail off compared to 2022, he noted.
Now, it appears as though those headwinds may be subsiding. The Federal Reserve has signaled that it could begin lowering interest rates this year, and the economy increasingly appears on course for a so-called soft landing.
“We are climbing out of a hole, and [market players] are optimistic about the future,” said Kevin Davis, chief executive of JLL’s hotel unit in the Americas. “We are cautiously optimistic that transaction volume will pick up.”
That enthusiasm was evident at last week’s Americas Lodging Investment Summit in Los Angeles, said Bob Webster, president of CBRE’s hotels institutional group, calling sentiment at the event “remarkedly upbeat.”
Webster noted that his firm’s pipeline of listings is up 20%
from a year ago. “You would think that the probability of closing a higher percentage of your book is … a reasonable conclusion,” he added.
Last year produced just 224 hotel trades worth at least $25 million, down from 514 in 2022, according to the Sales Comps Database. Large deals were even more scarce, with only a half dozen transactions valued above $300 million — and several of those involved assumable debt or seller financing. But signs that the debt market is reopening to larger transactions have started to emerge.
For example, a $460 million financing request tied to Henderson Park’s pending purchase of the Arizona Biltmore resort in Phoenix is attracting substantial attention from CMBS lenders, sister publication Commercial Mortgage Alert reported last week. Eastdil is representing seller Blackstone on the roughly $700 million deal, which would be the third-largest single-asset hotel sale since 2020.
“Capital markets have improved significantly in the past 12 months,” said Louis Stervinou, an Eastdil managing director. “This is a trend you are going to see prevail in 2024 and will support higher transaction volume and offerings with scale.”
Increasing pressure on owners also could fuel more activity. Over the last several years, “lenders have been really patient” with debt extensions, said Adam Etra, vice chair and co-head of Newmark’s lodging group. But now, “lenders are more likely to push borrowers for something meaningful, including a sizable paydown; or in the alternative some lenders are forcing their borrowers to explore a sale or recapitalization. Even though operating performance remains strong and there may not be any distress at the asset level, there are a multitude of deals that have significant stress within the capital stack.
At the same time, the hotel brands are pushing harder on owners to perform contractually obligated renovations. “The [capital expenditures] that some of these hotels require has grown exponentially,” Etra said, noting that it takes time to complete a comprehensive renovation and then ramp up performance again. “There are a number of owners who are considering a sale today versus down the road … but not everyone has the luxury of time.”
Any increase in listings could be met by a larger pool of bidders, said Krystal England, chief investment officer at TMGOC Ventures. “There are more equity players at least talking about doing more deals,” she said. “We will see if that actually comes through.”
Still, most pros don’t expect a substantial pick-up in activity until later this year. “Nothing changes over night, and the cost of debt is not expected to fall meaningfully until later in the year,” Newbond’s Avedisian said. “When is the right time? Once there is a bit more clarity on hotel performance and pricing resets by a few notable closed transactions, then the broader buyer market will have more conviction to transact.”
In the brokerage race, Eastdil completed $2.73 billion of hotel sales in 2023, a 22% year-over-year decline but still good for a market-leading 27.9% share of brokered deals. JLL’s trades dipped 18% from the prior year to $2.36 billion (24.1% market share), while CBRE saw a 45% decline to $1.98 billion (20.3% share).
Sales at Newmark fell 16% to $951 million (9.7% share), while those at Cushman dropped 14% to $533 million (5.4% share).
Broker rankings are based on property transactions that closed in 2023 and involved full or partial stakes valued at $25 million or more. When multiple brokers shared a listing, the dollar credit was divided evenly, but each broker was credited with one transaction. Only brokers for sellers were given credit. Portfolio transactions were included if the package price was at least $25 million.